Enron's Enablers

Okay, let's take the Bush administration at its
word, however mutable that
word may be. Let's say only a handful of officials--the commerce and treasury
secretaries, and (according to a subsequent clarification) several lesser
officials at Treasury, and (oh, yes, we forgot) White House Chief of Staff Andy
Card--knew about Ken Lay's phone calls imploring the administration to do
something that would head off Enron's impending bankruptcy. Let's say that none
of these presidential confidants thought to tell George W. Bush or Dick
Cheney--or Karl Rove, for that matter--that the largest donor to the Bush family,
the dominant corporation in W.'s hometown and home state, the seventh-largest
company in the United States, was about to go belly-up and that Ken Lay was
cold-calling half the federal registry looking for help.

Let's further concede, if only for the sake of argument, that the Bushies
played it by the book, that their collective sentiment was "We could help Enron,
but that would be wrong." (Translation: We're into them so deep that they're
radioactive.) In other words, let's assume that there's no scandal involving the
administration's trying to help Enron avert bankruptcy.

That still leaves the scandals of trying to help Enron do just about
everything else. To begin with, there's the scandal of inviting Enron to
formulate the administration's energy policy in closed-door meetings with Cheney,
and of Ken Lay effectively selecting the regulators charged with overseeing
Enron's conduct. And it wasn't just the administration that did Enron's bidding.
The energy bill passed by the Republican House contained a cozy $3.5-billion tax
break for natural-gas extraction and distribution, not to mention an exemption
from taxes on revenue from selling, buying, or operating a power grid. Enron was
hardly the only beneficiary of these provisions, but it certainly was a
mega-beneficiary. What's more, the stimulus bill that passed the House (and, like
the House energy bill, is stuck in the Senate) provided Enron with a $254-million
rebate as part of the retroactive repeal of corporate taxes.

Now, far be it from me to suggest that the House Republican
leadership--notably, Texas Republicans Dick Armey and Tom DeLay--had any interest
in assisting the company that's the biggest star in the Texas GOP's financial
firmament. And if they had, it would, of course, have been perfectly legal.

So, too, have been Congress's sins of omission--its stunning indifference to
rudimentary regulations that could have kept Enron afloat and at least moderately
more responsible to its employees and shareholders. Simply forbidding 401(k)
plans from investing more than 10 percent of their funds in a single company's
stock--as is the case with defined pension benefits--would have allowed
thousands of Enron employees and retirees to hang on to their nest eggs. If there
was ever any doubt, it should now be abundantly clear that 401(k) accounts were
set up more to help employers than to help employees.

Also clear is that although the nation may have narrowly averted a financial
meltdown during the collapse of Long-Term Capital Management in 1998, Congress
did nothing to avert a similar catastrophic reoccurrence. LTCM, a trader of those
exotic new financial derivatives, was subject to almost none of the regulations
that apply to old-style brokerage houses (like, say, the requirement to keep a
minimum financial balance for those days when the trades go sour).

Enron took the LTCM model and expanded it by what can only be described as a
process of free association. Where LTCM set up a minute-by-minute bazaar for
trading and speculating in financial matters, Enron tried to build a bazaar for
trading and speculating in virtually anything that could take the form of a
noun--gas, electricity, water, pollution, Internet bandwidth, advertising
space--all the while, taking a nice-size cut for every such trade. And since
Congress had drawn no lessons from the nosedive of LTCM, Enron wasn't required to
have much cash in reserve if its deals went south. Indeed, most of Enron's
operating capital came from the overnight loans of banks. So all it took to close
down America's seventh-largest corporation was one gray morning of banker
skepticism.

In the words of erstwhile Enron CEO Jeffrey Skilling, Enron was trying to move
from the "big iron" of the old economy--gas, oil, and the like--to the "soft
assets" (and higher profits) of deregulated trading. The lesson from both LTCM
and Enron seems to be the softer the asset, the harder the landing.

Now, is Congress criminally negligent for failing to regulate companies
engaged in this kind of shell game? Is the administration criminally liable for
designing energy and regulatory policies to Enron's specifications? Absent a
bombshell on the order of some politico having a piece of one of Enron's
off-the-books partnerships, of course not. But whether or not the Bushes and
DeLays actually held a smoking gun, they certainly cultivated one big-time
breeding ground for corporate crime.